S is a cash basis, calendar year taxpayer. She operates Cloth R Us. All of the store's profits come from the sale of fabric. Sales are $2 million. During the year she paid the following expenses:

1. $3,000 premium for liability insurance covering her business. The coverage runs from December 1, 2015 through November 30, 2018.

2. $10,000 for cloth, all of which is still on hand at the end of the taxable year.

3. $2,000 for "points" related to obtaining a loan for the purchase of her personal residence.

4. $1,200 for "points" related to obtaining a loan on rental property.